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Dollar Eases as Fed Odds Slip and Yen Hovers Near 40-Year Low

Lower near-term U.S. rate-hike expectations and falling oil prices have softened the dollar and left the yen exposed near the critical 162 level, raising the prospect of more official action.

Yen and U.S. dollar banknotes are seen in this illustration taken March 19, 2025. REUTERS/Dado Ruvic/Illustration
U.S. dollar banknotes are seen in this illustration taken March 24, 2026. REUTERS/Dado Ruvic/Illustration/File Photo
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Overview

  • The dollar weakened after recent U.S. reports and a more than 3% fall in crude oil reduced market bets on an imminent Fed rate rise, easing demand for the greenback.
  • USD/JPY has been trading around the 161.6–161.95 area, with 161.96 seen as a psychological line that would mark the yen's weakest level since 1986 and trigger elevated intervention risk.
  • Japan carried out record yen-buying operations in late April–May estimated at about 11.73 trillion yen and has shown further large interventions and a big drawdown in official reserves.
  • Finance Minister Satsuki Katayama said she spoke with U.S. Treasury Secretary Scott Bessent and that the two are prepared to take bold steps on currencies if needed, signaling close coordination.
  • The near-term outlook hinges on U.S. inflation and Fed commentary, Tokyo price readings and oil moves, with limits to how long Japan can defend the yen without wider costs to reserves and markets.